To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also
A) monitor and enforce them.
B) be willing to rewrite the contract if the borrower cannot comply with the restrictions.
C) trust the borrower to do the right thing.
D) be prepared to extend the deadline when the borrower needs more time to comply.
A
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When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline B. increase; raise; decline C. decline; lower; expand D. decline; raise; decline
Refer to the Article Summary. The convertible peso (CUC) is worth 25 times the peso (CUP), yet Cuban officials have for years treated the two currencies as being of equal value. This indicates that the peso (CUP) is ________ compared to the convertible peso (CUC), and would need to be ________ for the two currencies to reach the market equilibrium exchange rate.
A) overvalued; revalued B) undervalued; devalued C) overvalued; devalued D) undervalued; revalued
If income doubles and the quantity demanded of good X more than doubles, then good X can be described as a
a. substitute good. b. complement good. c. necessity. d. luxury.
Principal-agent problems are less likely to arise
a. if it is easy for principals to know agents' actions and if there is less conflict between their goals b. if it is difficult for principals to know agents' actions and if there is less conflict between their goals c. if it is easy for principals to know agents' actions and if there is some difference in their goals d. if it is difficult for principals to know agents' actions and if there is some difference in their goals e. if agents have higher incomes